Axiata: Projecting a Ten Percenter for 2011

HwangDBS Vickers Research Sdn Bhd is projecting Axiata Group Bhd’s revenue for financial year 2011 to grow by 10 per cent while the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin will remain stable at 49 per cent.

This is premised on Axiata’s 2011 plan to grow its revenue from Robi in Bangladesh, Dialog in Sri Lanka, XL in Indonesia and Celcom in Malaysia.

Except for Dialog,  the other subsidiaries are targeted to perform ahead of the industry.

While Celcom and XL will continue to grow mobile data services while remaining cost efficient,Robi will work to improve service quality and offerings.

Meanwhile, Dialog will focus on growing its data services revenue and managing cost efficiencies added HwangDBS.

As for dividend payout, it is projected that hte level would be 35 percent as  Axiata will be able to pay more dividends, given an expected more than sufficient free cash flows over the next two to three years.

Axiata has a dividend policy of a minimum 30 per cent payout ratio, translating to about a two per cent yield.

HwangDBS has maintained a “buy” call on Axiata with a sum-of-parts (SOP) derived target price of RM5.60. 

It's about 90 sen from that point.  I will buy now and leave at RM5.30

EPF-Backwater Payor

You would think that the EPF could do better that those people at Permodalan Nasional Berhad.

As usual, we are off the mark.

During the good years when banks were paying off fixed deposits at good rates, EPF was in the shadow-a laggard and whipping boy giving good money away at 'chicken shit' rate. Now it is forecasting low rates again, giving a thousand reasons why it cannot give better rates. So, what is new?

Right now, it has one bank, RHB, under its belt, a development banking agency, MBSB as well as a construction giant called MRCB with its nuggets of property in Brickfields. And what about the Sg.Buloh project and its profit offerings to EPF?

Coupled with that the government has been throwing handsome assets in the way of EPF. What can possibly go wrong? London property purchases? Tokyo stock market?

Let us read what Azlan of EPF has to say about your dividend potential next year.

The Employees Provident Fund (EPF) expects to declare a dividend rate of between 4.5 per cent and 5.5 per cent annually despite challenges in the global economy so says its CEO, Azlan.

He trumpeted in a good year like 2010, 5.8% was possible.

“The important thing is capital preservation. We feel that EPF now has got very good investments. Going forward, we are steady and comfortable,” he said

Azlan added EPF’s overseas investments during these challenging times were safe.

“On the positive side, we may find opportunities to buy or sell during the current market uncertainty, on a selective basis,” he said.

He said EPF was talking with the government to finalise the terms of the agreement on the development of the 1,200-hectare Rubber Research Institute land in Sungai Buloh.“We hope to finalise it before year-end,” he said.

So, do something for the members-build houses we can afford and give us first preference!

BJRetail: Return to Sender

Yes, this is so strange.

After listing BJRetail (BJR) on the Main Board last August 2010, it is really unexpected that Vincent Tan and his related parties will want to take it private once more after a mere 8 months.

In fact the stock has performed very poorly despite better results and a potential dividend in store.

It was offered at 50 sen during the IP0 and got as high as 56 sen. Subsequently, it succumbed to selling pressure because of too much loan stock conversion by related parties which to my notice, happens almost all the time. Before the price could stabilised, more were converted and off-loaded on the market as such miserable prices.

For those still holding BJR at 42.5 sen, this could be a God-send  opportunity to get out of this dog counter at 65 sen.

Another thing that I noticed is BJFood (BJF) is also experiencing loan stock conversion and today, it occurred, bringing the price down.

With the trouble in Saudi Arabia and the tsunami in Japan,next week would not be a good week for any stock and BJF may just go down to its offer price of 51 sen.

So, for those intending to get into BJF, just watch out for the price next week to make an entry.

I Am Back

So after his two gubernatorial terms in California, the Terminator is back to Hollywood. Possibly, he will play small  cameo roles in those movies that made him a household name.

No longer as nimble and fleet, he will have to work out and huff and puff just  like Harrison Ford when he did the latest Indiana Jones movie.

What else can we say except, " Welcome back, Arnold!"

NATIP: Zeroing on Thrust 3

In the 1970s, Malaysia's chief timber imports range from the export of round logs to sawn-timber,plywood and veneer. The industry has changed. Today,the nation exports boast value-added products such as high quality furniture and builder' joinery and carpentry.

Behind the advent and growth of these valued added industry is the use of machinery and skilled labour.

The current global timber industry is driven by competitiveness. On one hand, is the intense competition unleashed by the People's Republic of China(PRC) and Vietnam which specialises in low-end products.On the other hand, there is Japan and the Republic of Korea (ROK) which utilises high technology in their production of timber products. For Malaysia which is sandwiched somewhere in  between, its status as a a producer of comparative advantage based on cheap labour costs is but over.Its moment of truth is here.

Malaysia needs to reinvent itself if it is to maintain its stature as  a major exporter of timber products. The way forward will be through the adoption of technology. The industry must accept the reality that the industry now must be technology-driven. There is no longer any other option. Gone are the days of cheap labour or dependence of foreign labour.

The timber industry community must have an innovative mind. And the premise of an innovative mind is an innovative attitude.

As soon as timber industry players become  innovative and forsake quick gains for long term strategic advantage, will we then see them in  the driver's seat, spearheading technology adoption into the industry.

A corollary to an innovative attitude is the ability to take on risks. This is required if the nation is to successfully migrate  to technology intensive processes.

The timber industry is now at a crossroad. The situation is clear. Malaysia cannot compete with low cost producers like China and Vietnam. It is also no match for the technology-savvy Japanese and South Korean manufacturers. Local labour is not interested in the timber industry while foreign labour is fast disappearing.

What choice do the industry really have but to go technology?

The NATIP Wishes

Envisioning a greater role for the timber industry by 2020, the Government has commissioned a study to create a viable vision for the Timber industry from 2009 till 2020.

Known as the National Timber Industry Plan (NATIP), it proposes 7 thrusts for the achievement of its qualitative and quantitative targets.

The overriding mission of NATIP is that come 2020, Malaysian timber exports will achieve the value of RM53 billion. The qualitative vision is to achieve this target via a 40% contribution from upstream products and 60% from downstream products. Whether this is a tall order or need to be pruned to current realities will depend how the critical issues facing the industry can be effectively resolved.

The three critical challenges must be met strategically and expeditiously. Failing to do so with earnest will certainly makes such mission and vision a pipe dream.

The NATIP thrusts broadly embodies qualitative aspects. Each thrust incorporates a status report, a list of issues and challenges,the way forward and policy directions.

These are the thrusts:

Thrust 1: Industry Structure
Thrust 2: The Supply of Raw Materials
Thrust 3: Innovation and Technology
Thrust 4: Marketing and Innovation
Thrust 5: Marketing and Promotion
Thrust 6: Funding and Incentives
Thrust 7: Bumiputra Participation

Excluding the negative impact of exogenous factors, the 7 thrusts of the NATIP can be realisable and achievable  if they are passionately pursued i n an enabling environment.

The Timber Industry-The Crtiical Challenges

The challenges confronting the Malaysian Timber industry can be categorised into three. The first category is on raw materials while the second on labour resources. The third category is with regards to marketing and promotion of Malaysian timber products.

Of the three category, the most critical challenge is with regard to labour and then raw materials. The third category is a longer term challenge incorporating manifold strategies.

The shortage of raw materials current affect production as well as impede long term planning. While Peninsular Malaysia has banned the export of round logs, the export of logs is still allowed in both Sabah and Sarawak. This dichotomous situation has lead to the continuous outflow of raw materials in low value added form onto the international market from these two states while timber manufacturing companies from both Peninsular Malaysia and Sabah and Sarawak are facing acute shortages of raw materials to work on. On the long term, this demotivates investment into high value downstream processing of timber and puts a stump on the growth of the timber industry.

There have been concrete moves to promote forest plantation to resolve this raw material issue. However, the risk here are high and more need to be done to attract investment into this activity. To alleviate the risk issue, grants-in-aid from the government  as well as interest free loan should be made available to investors.

The research to identify other non-commercial species of timber is an on -going activity of the forest departments and the timber research fraternity. This is more a long term option.

Unless Sabah and Sarawak legislate to prohibit round log exports, the most ideal national plan document to move the industry forward  will only be delusional. There need to be some form of understanding between the Federal Government and the two state governments so that a planned cutback of timber log exports can be implemented for the growth of the timber industry.

The labour issue is the most contentious. An over-reliance over labour in this industry for such a long time is proving to be a bane as locals do not want to involved themselves in this industry and when  foreign labour has become a much sought commodity. Any policy measure to assist the industry from this aspect will be short term and relying on labour on the long term will be self-defeating. The way out is to go into mechanisation and automation processes.

To motivate industry players to pursue mechanisation and automation,the government must be innovative in its funding and fiscal initiatives. Suggestions like using part of the foreign worker levy to set up a trust fund to finance technology adoption, innovation and automation as well as a Commodity Bank to assist in this direction must be seriously considered by the Government.

Currently, general workers can be recruited from other source countries to work in the timber industry. Statistics from the Home Ministry has shown that lately, there are fewer foreign workers from source countries like Nepal and Vietnam. The fast growing economy of India has attracted Nepalese, Sri Lankan and Bangladesh to work in India which is closer to their countries. Similarly, the Vietnamese are staying home because of their rapid economic growth.

Even so, a good source country to consider on a longer term will still be Bangladesh. However, the government must take cognizant of the potential social problems that can be created in the recruitment of Bangladesh workers.

Marketing and Promotion is the third challenge confronting the industry. Where once industry were contented to be contract manufacturers for overseas firms, that kind of strategy will not be expedient in the long run. As skills are developed both from the shop floor and from industrial training institutes such as WISDEC, industry players must seriously think of positioning themselves as Malaysian product manufacturer in their own right. Issues like innovative designs and own brand manufacturing should be the next targets on the movement up the value chain. The time has come for more strategic marketing and promotion of  Malaysian timber products.

Apart from government support to showcase our global quality products at international timber product fairs, genuine attempts at strategic marketing and promotion alliance must be forged. Here, Malaysian timber promotion agencies and associations can play their role with their international counterparts to work out a win-win platform that is sustainable. On the part of government, FTAs would be a good place to start.